Tuesday, June 30, 2015
In Which I Discuss Political Economy With a Ten Year Old
TG: Oh. I wonder what’s in Area 51...
And the war needed to be won, as Stephen Karlson put it so succinctly.
So people loaned what they earned to the government via war bonds and stamps to the tune of half of the GDP. (Quite different from today, where government borrows from us via the Social Security trust fund until the Boomers all retire, at a small fraction of that rate.) A single HS could raise a half-million dollars in a month to buy a transport plane for the war effort. Watch a WWII era movie together and point out the ads at the start or end and the rationing stickers on the car windows.
When the war was over, the government paid off those bonds and people's savings were used to buy the cars (and washing machines etc) produced by former war plants (look up the Willow Run plant). Lots of pent up demand over 15 years, somewhat like we are seeing now with car sales. The GI Bill also kept millions from all trying to get a job in 1946, thereby controlling unemployment that might have been a disaster.
Random note: 10 is a good age to learn this. I can still remember some Great Depression images from my 5th grade social studies textbook. A soup line, something with trees from the CCC, and the newspaper headline about the stock crash.
"People borrowed too much, and couldn't pay it back" is arguably a better description of our recent recession than the Great Depression.
Also, while social security is no longer taking in more than it pays out, it's trust fund isn't gone yet. We don't really borrow for it in a meaningful sense.
Also, also, we *can* just print money, but we *couldn't* with the gold standard in place at the time. There are consequences of doing so, but it is complicated, so it is hard to tell how much money to print to optimize the economy.
But one correction about the Social Security trust fund. There will be trouble in the federal budget at the moment the trust fund starts to be paid down. You are right that it isn't "investing" in as much of the deficit as it once did, but it will be very difference once it replaces investment with payout. Something similar may happen to mutual funds when retirees start drawing them down.
But Kipling also might be thinking about "plenty of money" obtained by printing it (see, e.g., German hyperinflation of 1923 or Zimbabwe hyperinflation more recently.) The Weimar Republic might have been compelled to print money for lack of gold, but there are other technical reasons why a gold standard does not preclude hyperinflation per se.
Now when friend on the wrong coast's son starts asking about using taxes to bail out corporations, or keep the sports team from fleeing town, the conversations will get more interesting.
Yes, getting off the Gold Standard was vital. No, it wasn't nearly enough.